Saudi Central Bank (SAMA) and UAE Central Bank publish final CBDC Aber report

Saudi Central Bank (SAMA) and UAE Central Bank publish final CBDC Aber report

The Saudi Arabian Central Bank along with the UAE Central Bank have released a joint report on the Aber project, the Central Bank Digital Currency project that was initiated in 2019. Project Aber was an initiative launched by the central banks of Saudi Arabia and United Arab Emirates to explore the viability of a single dual-issued digital currency as an instrument of domestic and cross-border settlement between the two countries. As per the report, it is aimed to reflect the journey of the project which contributed to the body of knowledge in CBDC and Distributed Ledger Technologies.

Aber Project Framework

As per the report the initiative sought to explore whether distributed ledger technology could enable cross-border payments between the two countries to be reimagined: using a new, dual-issued digital currency as a unit of settlement between commercial banks in the two countries and domestically. The name Aber was selected because, as the Arabic word, for “crossing boundaries”, it both captures the cross-border nature of the project as well as the hope that it would also cross boundaries in terms of the use of the technology.

The report discussed the use cases designed, implemented and operated with solution results and key lessons learned. In summary the project confirmed that Distributed Ledger Technology (DLT) can provide central banks with the ability to reimagine both domestic and cross-border payment systems in new ways. The authors of the report believe that it represents a significant contribution to the body of knowledge in this field and lays the foundation for future work that we plan to explore in the future.

The high-level objectives of the initiative were to explore, experiment, and gain a deeper understanding of distributed ledger technology (DLT) and analyse its maturity; to explore an alternative DLT-based cross-border payment solution that can overcome inefficiencies in existing cross-border interbank payment approaches; to understand and experiment with the dual issuance of a central-bank digital currency; benchmark findings against those of other central banks.

The project was structured into three distinct phases or use cases,  use case one to explore cross-border settlement between the two central banks;  use case two to explore domestic settlement between three commercial banks in each country and  use case three to explore cross-border transactions between the commercial banks using the digital currency.

Key principles were agreed upon by all participants to guide the execution of the project, first that commercial banks would be active participants, running local nodes. Bank involved in the project includes AL Rajhi, Alinma ,Riyadh Bank, FAB , Emirates NBD , Dubai Islamic bank. Second principle was that real money would be used, and the project would not simply replicate conventional payment systems but explore how these systems could use DLT.

Project findings:

According to the report the project confirmed that a cross-border dual issued currency was technically viable and that it was possible to design a distributed payment system that offers the two countries significant improvement over centralized payment systems in terms of architectural resilience. The key requirements that were identified were all met, including complex requirements around privacy and decentralization, as well as requirements related to mitigating economics risks, such as central bank visibility of money supply and traceability of issued currency. The performance objectives that were originally set for the project were exceeded, proving that DLT technologies could offer high levels of performance whilst not compromising safety or privacy.

The project has also identified further areas that need to be explored in the future if the approach of a single digital currency is to be implemented: key amongst these are the need to understand impacts to the monetary policy of participating states and to address, in particular, the means by which interest is calculated and disbursed to the commercial banks in each jurisdiction and how this can be applied with a single digital currency.

Future Work

The report also notes that in terms of future work, there are many directions that this project can evolve towards. Firstly, it could provide the basis for a backup to domestic and regional RTGS; providing a more distributed and potentially resilient alternative to the centralized systems that are implemented or being implemented today. Secondly, by offering DLT-based payments rails, there is the possibility to expand to Delivery versus Payment (DvP) scenarios such as using the Aber network as a means of settlement for other forms of transaction, such as the sale of bonds or other dematerialized assets. Thirdly, there is the possibility of extending it geographically to include regional or other international central banks or linking heterogeneous networks together.

Feedback

UNLOCK spoke to Taha Sajid, a KSA based advisor in Blockchain DeFi, cloud and digital security who stated, “The Project ABER report was timely launched considering the national transformation drives that have been going on in the kingdom of Saudi Arabia for Vision2030. As we see people driving towards Bitcoin and other altcoins, with increased price volatility, nobody is sure what to expect, or how much to invest. This project will bring the trust back towards governments in terms technological advancement especially when it comes to central banks.”

Sajid adds that in terms of future roadmap, he believes that Central Banks such as KSA and UAE should include a study on retail CBDC. As he explains, “retail CBDCs can relieve banks from excessive KYC and AML compliance measures, as well as utilization of cash and online frauds and disputes. The BAHAMAS recently implemented their retail CBDC where users can directly open accounts with central bank using a Self-sovereign identity wallet. This could be a future utilization of  ABER Coin.”

Sajid also states that it would have been interesting to see how much time and cost savings were achieved during the interbank settlement with respect to RTGS, as well as a full definition of the scope of security in terms of protection, confidentiality, integrity and availability, non-repudiation into each layer of data ingress and egress. He also believes that utilizing 5G network could resolve latency throughput and scalability issues in the future.

Conclusion

In Conclusion the Central Bank of Saudi Arabia and UAE were one of the first in GCC to take an innovative step and test CBDC utilizing DLT technology. We look forward to seeing a real life application of this in the near future in the region. SAMA has also been one of the first central banks in the region to utilize blockchain to inject liquidity into banking sector. In addition the UAE Central Bank recently announced the regulation for digital assets, wallets and payments. Both central banks have shown their strive towards innovation in the digital currency sector.

Source: SAMA website
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